This Is How A State Goes Bankrupt, Illinois Edition
The comments below are an edited and abridged synopsis of an article by John Rubino
Somewhere during the 20th century, governors, mayors and union leaders got together and cooked up one of history’s greatest financial scams. They would offer teachers, cops and firefighters generous pensions but would avoid raising taxes to fund the resulting future obligations. Workers would vote to re-elect their benefactors, while taxpayers would appreciate the combination of excellent public services and low taxes.
The beauty of the scheme was that most of the original public sector workers were decades away from retirement, so the crime wouldn’t be discovered until long after the architects retired rich and revered.
Today, those baby-boomer workers are retiring and the scam is revealed. Even in the absence of a pandemic lockdown, mass defaults on state and city obligations would be inevitable in the coming decade. But with the lockdown, they’re coming next year.
The worst offenders do what they’ve always done: Look for ways to paper over the mess for one more election cycle. Illinois is the poster child for state financial mismanagement, with unfunded liabilities that have grown from virtually nothing to $137 billion in just the past two decades.
So it’s no surprise that its politicians are engaged in some ridiculous forms of damage control; Illinois is selling $850 billion of bonds as investors demand fatter yields for the state’s debt due to increased worries over its deep financial woes, which have been exacerbated by Covid-19.
The last remaining escape for the worst-run cities and states is a massive (multi-trillion dollar) bailout by the federal government. After the upcoming election, whichever party ends up in charge will face bond defaults and mass layoffs in Illinois, California, New York, New Jersey, Connecticut and Kentucky, among many other places.
A Democrat-led federal government will provide the trillions necessary to keep this from happening, while a Republican administration will dither before caving. Either way, the original crime is swept under the rug and the financial pressure is socialized, with all US taxpayers on the hook for previously local mistakes.